This article appears in the April 2021 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Canada’s wealth management fintech space, like a gangling teenager, has undergone a noticeable change in recent years.
Since the launch of robo-advisors in Canada more than five years ago, the fintech space has grown as companies have found their niches — either in the B2B or B2C market — and hired employees with skills and knowledge of the investment industry.
“I think the bench strength of these companies has improved,” said Rob Baldassare, senior advisor, fintech, with MaRS Discovery District in Toronto. He said fintechs have benefited from both organic growth and hiring employees with experience in financial services institutions.
In some cases, Baldassare said, fintechs have grown faster as a result of the pandemic: traditional financial services firms were motivated to act quickly as digital tools become more important.
In May 2020, CI Financial Corp. took full ownership of Vancouver-based WealthBar Financial Services Inc. and rebranded the company as CI Direct Investing. In July, National Bank of Canada, which owns a minority stake in Toronto-based Nest Wealth Asset Management Inc., invested an additional $50 million in that wealthtech platform through National Bank’s venture capital arm.
Many fintechs made their own moves in recent months. In March, Vancouver-based Mogo Inc. entered an agreement to acquire Montreal-based investing app Moka Financial Technologies Inc. Also in March, Toronto-based Wealthsimple Inc. announced it was selling its U.S. division to New York–based Betterment Holdings Inc.
The latter deal wasn’t the first time Wealthsimple hived off one of its businesses; last year, the company sold its B2B arm, Wealthsimple for Advisors, to Toronto-based Purpose Advisor Solutions (PAS). Jeff Gans, managing partner and CEO of PAS, said closing the deal with Wealthsimple during a pandemic was a “whirlwind” experience.
“Bringing two teams together without being in person is an interesting challenge … but our teams really stepped up,” Gans said. “We’re very happy with where we are. We’re not satisfied yet — we know we can deliver better service, we know we can give better capability to our referring advisors and [portfolio managers] and we’re excited for the opportunity to keep growing.”
PAS, which was founded in 2018 and is majority owned by Purpose Financial LP, has grown considerably since completing the acquisition of Wealthsimple for Advisors in September 2020. PAS’s assets under management are close to $2 billion, up from $1.5 billion after the deal closed, Gans said. And PAS tripled the size of its engineering team and added staff to its client-service and portfolio-management teams.
The PAS platform helps independent financial advisors with client prospecting and onboarding, account service and business coaching. PAS also partnered with other fintechs to offer additional capabilities. Those partners include Willful, through which wills can be drafted online; d1g1t Inc., a portfolio management platform; Link Investment Management Inc., which offers group RRSPs; and Conquest Planning Inc., which offers financial planning software.
“We see a real opportunity to help advisors gain the level of true independence, to have true control of their equity, to have true control of their client experience,” Gans said.
Wealthsimple is turning more attention to the Canadian market after selling its U.S. division to Betterment, although Wealthsimple still has an office in the U.K. Baldassare said there is space for Canadian fintechs on the global stage: “It comes down to what [each] fintech does. For example, if banks are your clients, there’s a great market in the U.S., just because of the fact they’ve got thousands and thousands of banks.”
Mukul Ahuja, partner and financial services and insurance industry leader with Deloitte LLP’s Omnia AI practice in Toronto, also said he sees the potential for Canadian fintechs to grow globally.
“We’ve seen continued capital investment in fintech in 2018, 2019 and even in 2020. While the number of deals has gone down [recently], capital continues to be invested across America, Asia, the Pacific [Rim] and some parts of Europe,” Ahuja said. “That, to me, indicates that there’s continued interest for Canadian fintechs to compete.”
Fintech investment dropped considerably last year: according to a January report from Deloitte, there were 10 venture capital–backed fintech launches globally in 2020, compared with 98 in 2019 and 156 in 2018. Funding activity also dropped: 917 fintechs raised $44.5 billion during 2020, while 1,335 fintechs raised $69.9 billion in 2019.
Despite 2020 being an outlier year, fintech investment is likely to continue as the market matures and companies with strong product offerings that struggle to find their place are bought by larger firms, Baldassare said.
“I think there’s going to be consolidation, where people with deep pockets are going to start rolling up a lot of fintechs under their banner,” Baldassare said.
What’s next for Canadian fintech?
Several fintechs in Canada offer services related to wealth management.
Rob Baldassare, senior advisor, fintech, with MaRS Discovery District in Toronto, advises fintechs such as PureFacts Financial Solutions Inc., which helps financial advisors with client reporting, and Cascades Financial Solutions Inc., which offers software designed to monitor the drawdown of assets in retirement.
But Canada’s fintech industry is about more than just digital wealth management solutions. Companies that offer payment processing, accounting and invoicing are “universal” across the fintech space and a popular target for investment, said Mukul Ahuja, partner and financial services and insurance industry leader with Deloitte LLP’s Omnia AI practice in Toronto.
Both Ahuja and Baldassare said they see potential for Canadian fintechs to expand into cybersecurity, regtech, cryptocurrency and open data.
Canadian fintechs have the talent, Baldassare said — the rest of the world just doesn’t know it yet. “From an R&D perspective, I would rate us pretty strong,” he said. “From a sales and marketing position, I think we have work to do.”